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An Introduction to Operations Strategy
The basic strategy model
Operations management and strategy requires analysis at three levels
Flow between operations Analysis at the
level of the supply network
Analysis at the level of the operation
Flow between processes
Analysis at the level of the process Flow between
resources
Strategic analysis
Operational analysis
Operations strategy is …
‘… the total pattern of
decisions …
… whilst managing the risks of misalignment’.
… through the on-going reconciliation of market requirements and operations resources …
… and their contribution to overall
strategy…
… of any type of operation ...… that shape the long-term
capabilities …
… so as to achieve a sustainable fit between the two …
The Goods – Services Continuum
How is operations strategy different from operations management?
Timescalee.g. capacitydecisions D
em
and
1 – 12 months
Short-term
Operations management
Long-term
Dem
an
d
1 – 10 years
Operations strategy
How is operations strategy different from operations management?
Level of analysisConcerned with the macro operation (level of the firm)
Micro
Operations management
Macro
Operations strategy
How is operations strategy different from operations management?
Level of aggregation(Concerned with resources at an aggregated level)
Detailed
Operations management
Aggregated
Operations strategy
‘Can we give tax services to the small business market in Antwerp?’
‘What is overall business advice capability compared with other capabilities?’
How is operations strategy different from operations management?
Level of abstraction(Concerned with the conceptual)
Concrete
Operations management
Philosophical
Operations strategy
‘How do we improve our purchasing procedures?’
‘Should we develop strategic alliances with suppliers?’
Products or services?
Manufacturing or non-manufacturing?
What is operations strategy about?
For profit or not-for-profit?
The sectoral scope of operations strategy
The role of operations strategy
Hayes and Wheelwright’s Four Stages of Strategy
The importance of operations to business and market needs
The four perspectives on operations strategy – top-down, bottom-up, market requirements and operations resources
Top-down
Operations strategy should interpret higher level strategy
Operationsresources
Operations strategy should build operations capabilities
Operations strategy should learn from day-to-day experiences
Bottom-up
Market requirements
Operations strategy should satisfy the organisation’s markets
Operations strategy must reflect four perspectives – top-down, bottom-up, market requirements, and operations resources
Top-down
Bottom-up
Corporate strategy
Business strategy
Emergent sense of what the strategy should beOperational
experience
Operations
resources
CapacitySupply networksProcess technologyDevelopment and organisation
Market requirements
QualitySpeed
DependabilityFlexibility
Cost
Top-down and bottom-up perspectives of strategy for the Metrology Company
Corporate objectives impact on business objectives which, in turn, influence Operations Strategy
Top down
Corporate strategy
Business strategy
Bottom up
Day-to-day experience of providing products and services to the market reveals problems and potential solutions which become formalised into Operations Strategy
Emergent sense of what the strategy should be
Operational experience
Operations strategy
Operations must have fast and flexible technology, supply relationships, process and staff
Modular strategy provides flexibility and innovation at relatively lowcost
Group building corporate capability in high technology products andservicesMetrology division competes on ‘fast-to-market’ innovations
Experiment with ‘modular’ design of key products and components
Customers confused by continual product innovation and costs are increasing
Corporate objectives impact on business objectives which, in turn, influence OperationsStrategy
Bottom up
Top down
Day-to-day experience of providing products and services to the market reveals problems and potential solutions which become formalised into Operations Strategy
Top-down and bottom-up perspectives of strategy for the Metrology Company
Operations strategy reconciles the requirements of the market with the capabilities of operations resources
Operations resources
Market requirements
Strategic reconciliation
OPERATIONS STRATEGY
The critical link between marketing and operations
Operations strategy is the strategic reconciliation of market requirements with operations resources
Tangible and intangible resources
Operations capabilities
Operations processes
Operations strategy decision areas
Customer needs
Market positioning
Competitors’ actions
Performance objectives
Understanding resourcesand processes
Strategic decisionsCapacitySupply
networksProcess
technologyDevelopment
and organisation
Required performanceQualitySpeedDependabilityFlexibilityCost
Understanding markets
British Sugar Hierarchy of Strategies
The performance measures
Quality
Companies (like Bentley or Toyota) have a reputation for quality
Products or services. High-quality hotels and restaurants, also luxury services such as high price hairdressers, etc.
High conformance is necessary for safety reasons such as in hospital blood testing.
SpeedAny accident, emergency or rescue
service.Transportation examples where different
speeds are reflected in the cost of the service. DHL and Blue Dart Courier service (Rs. 230/- for delivery within Delhi only) as compared to other courier services.
Likewise, the fast check-in service offered to business class passengers at airports.
And the exceptionally fast service of Concord which used to offer a fast service at a very high price.
DependabilitySome of the best examples are those
where there is a fixed ‘delivery’ time for the product or service.
Theatrical performances, magic shows (P.C. Sircar Sr. and Jr.) are an obvious examples.
Or the preparation and delivery of lectures in a classroom.
Other examples include space exploration projects which rely on launch dates during a narrow astronomical ‘window’.
FlexibilityExample would be a tailor who has to be
sufficiently flexible to cope with different shapes and sizes of customers and also (just as importantly) different aesthetic tastes and temperaments.
Another example would be the oil exploration engineers who need to be prepared to cope with whatever geological and environmental conditions they find drilling for oil in the most inhospitable parts of the world.
Accident and emergency departments in hospitals. Unless they have a broad range of knowledge which allows them to be flexible, they cannot cope with the broad range of conditions presented by their patients.
Cost
Examples of low-cost airliners in India, but only some of them survive.
21-day apex fare and other schemes of other airlines, kingfisher reducing the pouch size (or altogether no pouch at all), no toffees on flights, no free liquor in international flights run by American Airlines or Continental Airlines.
The ‘market requirements’ and ‘operations resource’ analysis of the lighting company
ResourcesEquipmentStaffReputationRelationships (internal and external)Experience
CapabilitiesApplication of leading edge lighting and sound technologyArticulation of client requirements
ProcessesIntegration of equipment supply and client requirementsDesign processSupplier liaison process
Operations strategy decisionsLocationVirtual reality technologySupplier developmentEquipment racking systemOrganisational structureStaff meetings
CustomersProfessional theatres (static, low margins)Exhibitions (slow growth, low margins)Conferences etc. (fast growth, higher margins
Market positionTraditionally differentiated on high service level in theatre and exhibition markets, innovation and service in conference marketCompetitorsBig groups dominating professional theatresIn-house operations growing in exhibitions marketConference market still fragmented
Performance objectives
Aesthetically innovative designsPresentation adviceHigh customisation of lighting solutionsFast and dependable supply
Market-Operations Link: McDonald’s
From managing a single part of the organisation (such as, a single McDonald’s store) to managing the operations for the whole of the organisation (for example, what are the key operations strategy decisions for McDonald’s in the whole of Europe?).
There is a difference between the two levels of analysis. Especially how the operational day-to-day issues (such as, the way staff are scheduled to work at different times in McDonald’s stores) can affect the more strategic issues for the organisation as a whole (such as, what level of service and costs are McDonald’s franchise holders expected to work to?).
The market perspective analysis of the garment company
PERFORMANCE OBJECTIVES MARKET POSITION Differentiation on:
CUSTOMERS Segmentation on:Age – youth
Purpose – general
COMPETITORS Traditionally weak in:
Innovative productsTime to marketProduct rangeCoordinated launches
promotiondesign innovation
DependabilitySpeed of deliveryProduct mix flexibilitySpeed to market
Capabilities
Resources Tangible:
EquipmentStaff
Processes
ReputationRelationships (internal and external)Experience
Intangible:
Application of leading-edge lighting and sound technologyArticulation of client requirements
Integration of equipment supply and client requirementsDesign processSupplier liaison process
Operations strategy decisionsLocation
Virtual reality technologySupplier developmentEquipment tracking systemsOrganisational structureStaff meetings
The operations resource perspective analysis of the lighting company
What you HAVEin terms of operations capabilities
What you NEED
to ‘compete’ in the market
Operations resources
Market requirements
What you WANTfrom your operations to help you ‘compete’
What you DO
to maintain your capabilities and satisfy markets
Strategic reconciliation
Operations strategy is …..
‘… the decisions which shape the
long-term
capabilities of the company’s
operations and
their contribution to overall strategy
through
the on-going reconciliation of
market
requirements and operations
resources …’
ProfitTotal assets
OutputTotal assets
ProfitOutput= ×
Decomposing the ratio profit/total assets to derive the four strategic decision areas of operations strategy
OutputTotal assets
OutputCapacity
Fixed assetsTotal assets
CapacityFixed assets
Utilisation
Working capital
Productivity of fixed assets
= × ×
ProfitOutput
RevenueOutput
CostOutput
Average revenue
Average cost
=
Operations strategy decision areas
Capacity Supply network
Process technology
Development and organisation
Operations strategy decision areas are partly structural and partly infrastructural
Capacity
Development and organisation
Supply network
Process technology
Structural issues
Infrastructural issues
Operations strategy
Perf
orm
ance
obje
ctiv
es
Quality
Speed
Dependability
Flexibility
Cost
Development and organisation
Capacity
Supply network
Process technology
Decision areas
Mark
et
com
peti
tiveness
The operations strategy matrixResource usage
7-Eleven Japan
Sells 15.X as much per store as nearest rivalHistory of cautious expansion and technical and service innovation‘Field Counsellors’ spread operations knowledge (also distance training)Expansion by territory to reduce distribution costs
Early use of TIS (Total Information System)TIS controls stock replenishment by twice a day delivery (sales analysed twice a day)
New systems not Internet-based
New service includes:
Bank terminals
Downloading games
Downloading music to MD
Internet ordering and collection
Largest retailer in Japan
COST in terms of minimising…•operating cost•capital cost•working capital
QUALITY of productsand services
Speed anddependability combinedto indicate AVAILABILITY
FLEXIBILITY ofresponse to sales and customer trends
Area dominancereduces distributionand advertising costs
•Location of stores•Size of stores
Distribution centre grouping by temperature
Distribution centresand inventory management systems give fast stock replenishment
TIS allows trends tobe forecast andsupply adjustments made
Common distribution centers give small frequent deliveriesfrom fewer sources
•Number and type of distribution centres•Order and stock replenishment
TIS gives comprehensive and sophisticated analysis of sales & supply patterns daily
•The Total Information System (TIS)
Information sharingand parenting system spreads serviceideas
Field counsellors with sales data helpstores to minimise waste and increase sales
•Franchisee relationships
•New product/service development•Approach to operations improvement
DEVELOPMENT AND ORGANISATION
PROCESS TECHNOLOGY
SUPPLY NETWORKS CAPACITY
RESOURCE DEPLOYMENT
Mark
et
Com
peti
tiven
ess
Pivotal CriticalSecondary
7-11 JAPAN
Specifics of operations strategy
The Hill Framework
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